Helping to make childcare more affordable with childcare
From April 2005 the government enabled tax concessions for
employer supported childcare
vouchers. The aim of the exemptions is to encourage employers
to help their staff with the cost of their childcare. Three types
of employer support for childcare now attract exemptions from
income tax and National Insurance Contributions (NICs):
- Childcare vouchers up to £55 per week (£247
- Payments to childcare providers up to £55 per
- Workplace childcare provision up to the full amount
for which the employer subsidises the childcare
- The exemption means that employees pay neither income tax
or NICs on the support and the employers pay no NICs.
vouchers are a method of payment that allows an employer to contribute
specifically to its employees' childcare costs, either by a paperless
"e" voucher or a paper voucher, redeemable by the childcare
provider. Employers using a childcare voucher provider will pay
a management fee, sometimes a percentage of the amount of vouchers
Benefits and Savings
For a parent given £55 per week worth of childcare vouchers
in addition to salary they gain around £2860 a year as
they pay no tax or NICs.
For a parent given £50 per week worth of support a week
after taking an equivalent salary sacrifice to receive the vouchers
the annual saving on tax and NICs is likely to be between £960
and £1195 a year depending on the rates of income tax and
NIC paid and whether or not the parent is contracted in or out of the state second pension. The employers own NIC savings will be around £373
Childcare Vouchers and Salary Sacrifice
An employer must provide the support to a parent. The exemption
applies to benefits an employer gives to an employee therefore
unemployed and self-employed parents are not eligible. Each employed
parent is entitled to claim the exemption towards childcare vouchers.
The parent must have an eligible child to be in receipt of
child care vouchers.
Childcare Vouchers can only be used to pay for registered childcare.
The exemption must be available to all staff
How does a childcare voucher scheme
An employer will normally contract a childcare voucher company
to provide child care vouchers to their staff. Vouchers can be
offered as a benefit-in-kind on top of existing pay, as part
of a flexible benefits package or most commonly as part of a
salary sacrifice scheme. Childcare voucher companies normally offer
an e-voucher scheme where payments are made directly to a providers bank account.
Alternatively, some childcare voucher companies issue paper vouchers to the employer which can
be distributed to staff accordingly, though some childcare voucher companies may post vouchers
directly to the employee's home. Those employees can use the
vouchers to 'pay' their childcare provider. The childcare provider
will then redeem the value of the voucher directly from the childcare
voucher company. For paper childcare vouchers payment
to the childcare provider is usually made by direct payment into
their bank account. The employer will negotiate a management
fee to the company for their service, however usually the savings
made on NICs more than cover the cost of this fee.
What is salary sacrifice?
Salary sacrifice means that an employee formally agrees to
a reduction to their taxable salary and instead receives that
amount (equivalent to the reduction) in childcare vouchers. The
value of the child care vouchers is exempt from NICs for both
employer and employee, and from tax for the employee. This means
NIC savings of up to 12.8 per cent for employers and up to 11
per cent for employees, plus the savings employees make on not
paying tax. The contract between employer and employee must be
updated and a signed agreement incorporated to reflect the changes
agreed within the salary sacrifice.
How will we benefit as an employer
by offering childcare vouchers?
Employers who provide support for their staff through childcare
vouchers benefit in a number of ways including:
- NIC savings of up to 12.8 per cent around £372
- Tax and NIC savings for employees helping them with
- Demonstrates commitment to your staff and enhances your company
- Improves staff motivation and morale, therefore increasing
- Improves staff recruitment and retention
- Reduced absenteeism
What sort of childcare can they be
used to pay for?
Childcare vouchers can be used to pay for any form of legal
childcare, but the first £55 a week received in vouchers
will only be tax and NICs exempt if it is used to pay for registered*
- Childminders, nurseries and playschemes registered by Ofsted.
- Out of hours clubs run by a school on the school premises
or by a local authority.
- Childcare schemes run by registered providers.
- An approved foster-carer (the care must be for a child who
is not the foster carer's foster child)
- In England only, a childcarer who is approved by Ofsted to
care for your child or children in your own home these
are childminders who have further qualified to become "home
- In England only, childcare given in the child's own home
by a domiciliary worker or nurse from a registered agency who
cares for the child or children.
- In Scotland only, childcare given in the child's own home
by (or introduced through) childcare agencies, including sitter
services and nanny agencies, which must be registered.
Can all childcare providers accept
Yes, as long as the provider has a bank account. In order
to receive the reimbursed value of a child care voucher, childcare
providers will need to register their details with the childcare
voucher company. This is usually a record of contact details,
registration number where appropriate, and bank account details
if the company intend to make payments directly into the back
account of the carer. There is no cost to the childcare provider
in receiving payment through vouchers. Information packs that
explain the voucher processes for childcare providers are available
from most childcare voucher companies.
How much will it cost?
The only cost to an employer who signs up to a childcare voucher
scheme is the management fee to the child care voucher company.
These vary and are often negotiable with the company. Some may
charge a set rate whilst others may charge a percentage of the
overall value of childcare vouchers requested by an employer.
However the savings a company makes in terms of reduced NICs
usually exceeds the management fee charged by the voucher company.